Q4 2021 Kinaxis Inc Earnings Call
Welcome to can access incorporated fiscal 2021 fourth quarter results conference call.
At this time all participants are in a listen only mode. Following the presentation. We will conduct a question and answer session and instructions will be provided at that time for you to queue up for questions I'd like to remind everyone that this call is being recorded today Wednesday March 2nd 2022, I will now turn the call over to Rick <unk>.
Worth Vice President of Investor Relations at connects incorporated. Please go ahead Mr. Wadsworth.
Thanks, operator.
Good morning, and welcome to the Texas, earning call.
Today, we'll be discussing our fourth quarter and year end results, which we issued after close of markets yesterday with me on the call are John scarred, our President and Chief Executive Officer, and blamed Fitzgerald, our Chief Financial Officer.
Before we get started I want to emphasize that some of the information discussed on this call is based on information as of today March two 2022.
These forward looking statements that involve risks and uncertainties actual results may differ materially from those set forth in such statements for a discussion of these risks and uncertainties you should review the forward looking statements disclosure in the earnings press release as well as in connect SEDAR filings. During this call, we'll discuss I, perhaps results and.
I'll have her financial measures a reconciliation between I am sorry.
As far as results and non <unk> financial measures is available in our earnings press release and in our MD&A both of which can be found on the Investor Relations section per website can access dot com and on SEDAR.
Participants are advised that the webcast is live and is also being recorded for playback purposes, an archive of the webcast will be made available on the IR section of our website.
Neither this call nor the webcast archive may be rerecorded or otherwise reproduced or distributed without prior written permission from classes.
Begin our call John will discuss the highlights for our quarter as well as recent business developments, followed by Blaine, who will review our financial results and outlook finally, John will make some closing remarks before opening up the line for questions.
We have a presentation to accompany today's call, which can be downloaded from the investor relations homepage of our website can access how come we will let you know when to change slides I'll now turn the call over to John .
Thank you Rick good morning, everyone and thank you for joining us today I'll be starting on slide four I'm pleased to report that can access had a strong end to our fiscal year, both in our financial results and key operating metrics.
For Q4, we achieved SaaS revenue growth of 18% to 46.9 million total revenue growth of 25% to $68 5 million and an adjusted EBITDA margin of 16%.
For the year, we hit all of our financial targets, including those we raised within the ear.
Turning to slide five.
We are thrilled with the continuation of accelerated momentum can access is experiencing.
In Q4 and for the full year, we achieved a record high level of incremental subscription bookings and in Q4 also set a new all time high for new customer wins.
In fact, we more than doubled the number of new customer wins for the full year compared to 2020.
We were incredibly humbled to welcome some globally recognized brands across multiple vertical markets and geographies.
And I'm happy to highlight just a few of them for you here today.
In life Sciences.
We earned the trust of Cardinal Health.
We have been limited and.
And we're particularly pleased and proud to be working with bio in tech.
In consumer products, we added Boston beer.
Edwards limited high liner foods, Jameson wellness and Robert Bosch.
In automotive, we welcomed Mazda motor Europe to our ever growing list of iconic customers in that market and high Tech and right here in Canada, Rogers Communications, who joined us.
And then the industrial sector, we won B P International limited, our second bellwether account in oil and gas.
There are so many other names I hope to be able to share with you in the future, but these few shared with you today.
Demonstrate that accelerated momentum is upon us.
And in fact as maintained it has maintained pace and the opening weeks of 2022 as we continue to add major global brands to connect to the connections family customers.
Our success through 'twenty, 'twenty, one and winning new customers combined with expansion from our installed base has resulted in very strong annual recurring revenue.
Year and a R. R was recorded at $225 million in constant currency.
Our backlog of business recorded at a very healthy $484 million.
Add to that a four quarter rolling pipeline that continues to grow and we are confident visibility into SaaS revenue growth of 23% to 25% for 2022.
Our recent initiatives to expand in the mid market opportunities and accelerate time to value for new customers.
Been very successful year to date, we saw roughly 55% to 45% split between new enterprise customers and mid market or smaller customers rapid start was chosen as the initial implementation approach by roughly one third of all new customers and this is a trend we believe we will.
<unk>.
As we exit pandemic protocols, we continue to see supply chains at the forefront of boardroom conversations and in the news.
The need for supply chain resilience has never been more apparent and demands for transformation towards true end to end concurrent planning.
Can access simply has never been more relevant nor better positioned to serve the needs of our markets.
We are responding to this accelerated momentum and responding to market indicators by continuing to invest to grow our market share and enhance our platform and service offerings to further distance ourselves from the competition.
I'll now ask Blaine to discuss results of our Q4 and the year blank.
Thank you John and good morning.
As a reminder, unless noted otherwise all figures reported on today's call are in U S dollars under IRS.
You move on to slide six.
Revenue in the fourth quarter was up 25% to $68 5 million.
Revenue grew 18% to $46 $9 million.
Driven by record new customer wins in recent quarters and the expansion of existing customer subscriptions.
Subscription term license revenue was $1 4 million versus $1 9 million in Q4 of 2024.
Fluctuations in this revenue item are generally tied to the normal renewal cycle of a customer hosted software subscription and.
And will vary period to period as a result.
Our professional services activity was strong again.
Resulting in $17 million in revenue.
Or 50% growth over the corresponding quarter of 2020.
The rapid growth reflects accelerating new customer wins in recent periods and expansion of our service offerings.
Generally this revenue item varies from quarter to quarter based on the number size and timing of customer projects underway as it.
Well as a proportion of work assumed by partners.
Maintenance and support revenue for the quarter was $3 2 million in line with recent project periods, but up 72% from Q4 of 2020, which was largely due to an adjustment made to this revenue item in the comparative period.
We continue to be pleased with the diversity and strength of our total revenue base for.
For the quarter and year to date, our 10 largest customers accounted for 26% and 25% of our total revenues, respectively with no individual customer accounting for greater than 10% of total revenues.
Fourth quarter gross profit increased by 26% to $43 $9 million as a result of our revenue growth gross.
Gross margin in the quarter was 64% compared to 63% in Q4 of 2020.
Adjusted EBITDA was up 85% to $11 3 million for a margin of 16% compared to 11% in the fourth quarter last year.
Our loss in the quarter with $2 $9 million compared to $1.6 million in Q4 of 2020.
Q4 cash flow from operating activities was approximately approximately level with the comparable period at $3 $2 million.
At December 31, 2021, cash and cash equivalents and short term investments totaled $233 4 million compared to $213 $1 million at the end of 2020.
We remain pleased with our outstanding track record of cash generation.
Move to slide seven.
Full year 2020 results included total revenue of $257 million up 12% from 2020.
SaaS revenue of $174 $5 million up 17%.
Subscription term licenses revenue of $6 1 million, a decrease of 66%, which is simply a reflection of 2021 being the low point of the normal three cycle three year cycle of customer hosted subscription renewals.
Adjusted EBIT margin of 16% compared to 24% in 2020, reflecting the natural dip in subscription term license revenue and a significant strategic investments we made in 2020 in 2021 .
Which are now, resulting an acceleration across our business.
Our loss of $1 2 million compared to a profit of $13 $7 million, reflecting the same items for adjusted EBITDA, plus higher share based compensation and depreciation expense.
Finally cash flow from operating activities was $50 1 million compared to $59 5 million in 2020.
As John mentioned at the beginning of the call. We are very pleased to have met or exceeded all aspects of our initial and increased guidance for the year.
Ultimately, though our focus in 2021 wasn't growing or incremental subscription bookings and in that respect 2021 was our most successful year by some measure.
<unk> and some key operating metrics.
Looking at slide eight let's look at the most important metric first.
Annual recurring revenue or <unk>.
Including currency effects are Ara grew $36 million to $221 million or 19% compared to an increase last year of $26 million or 17% growth.
But currency movements mass some of some even stronger underlying growth.
We are very pleased that our air on a constant currency basis grew $40 million in 2000 $21 million to $225 million or 21% growth compared to an increase last year of only $24 million or 15% growth.
This dramatic improvement is a reflection of the unprecedented strength, we have experienced all year, winning new accounts and have success, winning incremental business from our installed base.
I'll remind you that growth rate for SaaS portion of it.
Higher than for total error. So we have full confidence that we can grow SaaS revenue by 23% to 25% in 2022.
I'll also note that on an unusual number of the contracts we signed in the fourth quarter included provisions that build and meaningful expansion of the subscription amounts throughout 2022 and 2023.
Our.
At year end is conservative and that it does not yet reflect the guaranteed growth.
Including those announced would've resulted in an even higher growth rates.
Moving to slide nine.
Our remaining performance obligations, our IPO is very strong at $484 million up.
27% from December 31, 2020.
Of that total 424 million relates to SaaS business, which is up 20%.
Further details on our RPM can be found in the revenue to our financials.
<unk> growth reflects the record level of incremental subscription bookings in 2021 from new and existing customers. But also reflects the fact that more renewals happened to be scheduled for Q4 than in recent quarters. As we indicated would be the case in our on our last call.
While <unk> is a valuable metric remember that isn't impacted by their normal schedule of existing customer contract renewals and there duration among other factors.
<unk> is a more specific indicator of momentum in winning new subscription business, which in turn drives future revenue growth.
Of the 2021, RP O amount approximately $217 million will be recognized as revenue in 2022 of which approximately 179 million relates to SaaS business.
This guaranteed backlog of SaaS business provides us over 80% coverage of our 2022 SaaS revenue outlook at the midpoint, which had been a typical target for us.
Go on to slide 10.
With respect to our outlook, we are pleased to be able to provide you with initial guidance for fiscal 2022.
We expect total annual revenue to be between 335 and $345 million Rep.
Representing approximately 36% growth at the midpoint.
SaaS revenue expected to grow between 23% and 25% over our 2021 level.
Subscription term license revenue will hit the peak of his three year cycle. In 2022, So we are expecting between 30 and $32 million.
The growth in this amount since the last peak of $26 million in 2019, largely reflects expansion activity within the on premise customer pool roughly.
Roughly two thirds of this revenue will be recognized in the first quarter, just less than one quarter of the amount in Q3 and the remainder in Q4.
I should add that due to the growth in this item maintenance and support revenue will also grow by a couple of million dollars in 2022.
Finally for 2022, we expect our adjusted EBITDA margin to be between 15 and 18%.
The market for supply chain planning and our own unique differentiation differentiation within it had been I've never been stronger. So we have decided to continue to invest aggressively in all aspects of the business.
R&D sales and marketing professional services customer care, and G&A where necessary.
Support greater scale.
As momentum behind digitalization of supply chain continues to pick up pace, we will make sure that we have all the resources available to meet the opportunities and extend our lead.
Looking at other financial targets for 2020, you were aiming for a gross margin in the 63% to 65% range.
Sales and marketing and research and development to be approximately 22% to 24% of revenue each and G&A to be in the 16% to 18% range.
We expect capex will be between 23% and $28 million, mostly related to expansions to our data center capacity to support our growing customer base.
We've seen our bets from 2020 in 2021 pay off and we see plenty of opportunity for continued growth our ongoing investment in strategic initiatives as reflected in our guidance for 2020 to demonstrate our higher level of confidence that we are moving in the right direction as we build for the long term.
With that I will turn the call back over to John .
Thank you Blayne, let me reiterate a few important points before we move to the Q&A portion of the call first and foremost the quality and quantity of customers that continues to join the <unk> family is beyond humbling.
For both investors and our end markets, our Blue chip customer base continues to represent the biggest proof point of our entirely unique differentiator concurrent planning.
Secondly.
Key strategies that we have recently put in place including our.
Our decision to proactively target the mid market and to accelerate time to value with rapid start are working.
New customer wins have hit record levels and thanks to the proven value and stickiness of rapid response, we expect each to grow with us for a very long time.
Third.
We have exceptional visibility into 2022 that will deliver greatly accelerated SaaS revenue growth as reflected by expansion in our <unk> and <unk> numbers shared today finally.
Our confidence and the market's demand for our flavor supply chain transformation remains very high.
And we will continue to invest to ensure we are ready to absorb success.
We see tremendous opportunities to capture more market share and enhance our platform and service offerings to distance ourselves even further from the competition <unk>.
Momentum in the business is at an unprecedented level and we intend to take full advantage of that.
As always thank you for taking the time to join us on the call and with that I'll turn the line over to the operator for Q&A.
Thank you we will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
Using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Yeah.
Our first question comes from Sandoz, most choppiness from BMO capital markets. Please go ahead.
Good morning.
John You mentioned the win with BP, which is interesting since that's obviously a non traditional vertical and anything you can tell us about that use case, whether we're talking upstream or downstream and just in general in terms of the pipeline and opportunity youre seeing in the oil and gas.
It's a great observation Santos and.
And we are seeing some.
Some interest from general interest from that sector as I mentioned this was our second bellwether.
For that I'll call it a sub vertical of industrial.
And we're generally in the upstream of that.
All of those use cases, so obviously not in the refinement or the exploratory.
Aside of their supply chain.
But we do see it as a very interesting sub segment of the industrial.
Market and you may very well here some other names as well as the year progresses.
Okay great.
Can you update us on competition. So I assume an enterprise is probably the usual suspects, but as you go into the mid market is at a different cast of characters some extent or what are you seeing.
You know there hasn't really been a meaningful change.
We continue to see the traditional incumbent.
We see blue Yonder and own mind from time to time.
I would say the Gartner magic quadrant has done an exceptional job at showing where the gaps are.
Between the competitors.
I will say, we are certainly looking forward to the release of the 2022 and Q.
Told it is eminent we shall see but I think the.
The Gartner does an exceptional job at it.
Highlighting the differences between between competitors, but again I'll say, we have not in the field seen any meaningful shift in one direction or the other.
Okay.
And then finally on M&A, you announced a small.
Tuck in.
Nothing to call out there and then in general any commentary on the M&A pipeline would be helpful. Thanks.
Yeah. Thanks for that yes. So we are you know.
I think I've said this on prior calls being a lot more thoughtful about filling.
White space, and what I would call technical gaps that we might.
You see opportunities for.
And so you know at the same time, our approach to rapid response as a platform.
And really driving.
Driving other companies to build their own intellectual property on top of rapid response is also part and parcel of that strategy.
So as far as.
As it relates to this this little tuck in that we did for.
For competitive reasons, we're not going to go into much detail here.
While our company has come with that.
This company comes with a small product or not.
And more so significant expertise in an area that we are strategically focused on we won't be commenting too much on exactly what that area is but essentially it was a $3 million to $4 million acquisition all cash <unk>.
Approximately 10 people in North America.
And more to come on.
What we'll be doing from a roadmap perspective.
Great. Thanks, John I'll pass a lot.
It is now.
The next question comes from Daniel Chan from TD Securities. Please go ahead.
Hi, Good morning, you talked about the recent wins, having some expansions throughout the next couple of years can you just help quantify how much those expansions are over the current <unk> and whether they are in the current guidance and in the current Rps.
Yeah, Great Great question.
So therefore, what we don't disclose how much the amount of I guess ramping that's involved.
But it's a significant amount or we would have had but if I think about our AR growth. If we were even including that amount. We were at an all time high with our air growth.
Which is a great sign it will be spanning between mostly in 2022 and 2023 more in the back half way and trying to you. We included obviously the 22 amounts that we know is already committed.
Part of our forecast.
So all the information is included in our guidance at this stage, but we are really pleased I mean I.
I don't like I always point to RVO RP O partially increasing at the rate. It was because we have a lot of faith that was put into us by some new customers that decided they wanted to keep growing with us in the future.
That was a great sign and a great Testament to the success we've had in 2021.
Okay. Thanks, and then I was wonder if you can give some color on the on the record number of new customers that you've won.
Most of those were competitive displacements are largely greenfield, whether they were mid market or enterprise anything would be helpful.
Yes, so there.
I would say that are largely competitive replacement frankly, an end.
I think what we're seeing in the market now more than ever is the.
We're hearing the term resilience quite often a lot of organizations are driving towards a more resilient supply chain and obviously the conditions the planet finds itself in.
You would see that how that makes a lot of sense and resilience isn't a competence. It's an outcome of one and we believe the competence that brings about resilience is agility and obviously with.
Agility comes concurrent planning and so you know the.
The customer wins, I would say by and large are an offset.
A traditional approach with a what I might call a legacy <unk>.
Software package that they are replacing.
And moving towards concurrent planning.
Blame you might comment on the split between enterprise and.
And mid market.
We mentioned in the script we were at.
Around $55 to 45% from 55% being enterprise and 45% mid market, which which actually changes the way that we have on competitive dynamics, because you can imagine that with enterprises. It's a very very competitive scenario in place, where we're have robyn displace generally.
Another solution in that situation with mid market is not as much that what we would see it.
Competitive displacement, but it is a very.
Competitive arena that we're fighting with other other.
The company's two windows those companies, though.
Okay. Thanks, and then last one for me.
Sessional services revenues coming in much stronger than expected.
Driving that considering we were expecting most pro serve to go to your Si partners.
Yeah.
Great question, and Oh, maybe just start that you're absolutely right the majority of the.
Services are going to our partners in our ecosystem.
Less than 30% of the total revenue that that's going.
The approach there.
But at the same time this is a situation where we're in a great position and everyone's in a great position in terms of everyone is in high demand.
Were in high demand and our partners are in high demand.
We simply just to be seem.
Seem to be a little bit ahead of some of our partners in terms of being able to.
Phil and deploy the requests that are coming in right now and so although our partners are and we want our long term to be even less than that 30% number or 20% number 10%. We want to have a smaller market smaller portion of the total professional services ecosystem revenue that's out there.
For the time being because demand is so high and everyone is trying to do whatever they can to keep up with this demand and we just simply happen to be in a great position.
John I don't know that yes, we are we are monitoring the bench strength of our.
Of our partner Alliance very very carefully and.
It's hot in every geography in every vertical.
And as Glenn said, we're responding to the demand being put upon us and the speed at which our customers are driving these these transformations.
So our thesis has not changed whatsoever, we continue to sign a partners as in fact, we signed a record level number of partners in 'twenty 2021.
So we're continuing along that path, it's a situation right now where the demand for transformation projects outpaces pretty much the environment's capacity to deliberate and so everyone is exceptionally busy.
And we're working very hard with the partner Alliance team as part of our investment thesis for 2022 is investing heavily in partner enablement to accelerate partner enablement just to keep up with the demand.
Great. Thank you.
The next question comes from Robert Young from Canaccord Genuity. Please go ahead.
Hi, Good morning, maybe I'll just continue on that last line.
EBITDA margin guidance for <unk>.
I think maybe a little bit lower than expected and so I'm curious if that's a reactive on the professional services or are you just trying to pull people into the business that.
Is that where the impact on EBITDA margins are or is this I think in the script. You said it was reacting to the demand that youre seeing out there and expanding so is this more go to market sales expansion is in R&D.
Maybe you could just give a little more color and maybe some some idea of whether this is professional services driven or not.
Great Great question.
I think the first.
Answered nothing we're doing is reactive at this stage, it's intentional and.
I'll just go back to what happened in 2021 and we made some intentional investments we had as a result, we had some great.
Situations that came out where we had five quarters in a row now of new name account customers that are walking.
We won.
We just had our highest incremental bookings ever we have a highest gross bookings ever expanded our tam or not.
Paradigm.
We're going to be talking about 36% year over year total revenue growth that we're expecting in 'twenty two so.
Right now we've seen that the investments, we're making are working.
And.
I'll be very candid and say that we are at 30% to 35% adjusted EBITDA company in the long term when we want to do that we'll do that.
Today, what we're trying to do is grow that pie as big as we can so we can share with our investors.
In the future and so we're investing in our professional services like you said, they're screaming and its not us its like us and our partners are screaming for her support because there are so many customers that are asking for the service right now sales and marketing as you can imagine.
And marketing.
Trying to keep up with the pipeline and our pipeline keeps on growing and growing and growing we need to make sure that we have some experience.
Rvp's that can help them, along the way and they've done fantastic jobs over the last year.
Data centers, we see the pipeline, we see the potential customer growth that we're expecting we need to make sure that we have those data centers up and running in advance and so far.
Part of that is hitting us as well and that's hitting our gross margins, particularly customer support. Another great example of an area, where we need to have people who are onboarding.
On boarded and ready to go to be able to support this bigger customer base.
It's been growing.
Quite rapidly and then.
The other piece to remember is as we made a big investment in R&D last year and.
And we do that because the opportunity is growing.
We're continuing to maintain that R&D growth because.
We are no longer a company that is thinking that we're going to have 200 customers for the rest of our.
Life is going to be 2000 customers at some point and we need to make sure that our platform is able to support that rapid scaling growth and I think we're going in the right directions.
It's a great position to be in when you say, okay. If we do this this is going to be the result.
And that's exactly what happened in 2021 and in fact, it probably was a little bit better than we were expecting.
Okay. Thanks for all that color. My next question would be around rapid start I think you said it was one third.
I think that seems to me to be lower I might be wrong on that but is that a normalization of events are you seeing the core larger enterprise sort of.
Go back to a more normal deployment with more customization and.
First driving channel and mid market or maybe you can just talk about that dynamic if that's the case sure absolutely. So yeah. This quarter, we're going to see quarter to quarter fluctuations, we've seen quarters, where it was half and half.
We've seen some quarters, where rapid start was was being picked up by mid market over enterprise I'd say in this past quarter, we were surprised to see enterprise.
Companies, some enterprise companies moving in that direction as well, but we are going to see some fluctuations.
The quarter quarter over quarter. The key here is.
For us it really is just to be able to.
Unmatched deployment speed.
For any size any size company.
Regard rapid start has been an absolute absolute success. If you think about it is it's relatively new.
So we're thrilled to see the adoption and the uptake.
And then I also wanted to clarify one thing that in some cases, we are signing long term agreements that's.
That's obviously building our <unk> numbers.
We're up and it's a and an enterprise class kind of a.
The deal structure.
The first phase is still a rapid start it just doesn't stop there right. So you know and.
And so that to some degree.
It's coloring those numbers a bit.
So in any case I would say the rapid start.
Methodology. It was a great decision, it's actually it's a it's working exactly as expected and frankly without it.
Some of the some of the deals that we closed we wouldn't have been qualified for without having a rapid start.
Rapid value.
No go lives in 12 weeks or less kind of an approach.
Alright.
That dynamic what's driving that guaranteed expansion that you talked about.
Well certainly yes.
Our land and expand.
<unk> is always its been omni present.
As long as we've known each other Rob right, so and it continues to be so.
We've had we've had many cases, where customers who started with a rapid start 12 week deployment.
They've already expanded.
You see them extent, expanding a one quarter later and they're all really saying Okay. This is great, let's keep moving let's expand from here.
And so the expansion model is definitely baked into the into the model here you certainly don't get any future state revenue because of rapid start that's another very important.
Statement to make the fact that we are deploying this.
Rapid time to value, reducing the friction to making a decision.
You know getting getting live inside of 12 weeks by no means does that mean that can access is forfeited any future state opportunity. It's quite the contrary, we're looking at the expansion.
As soon as we hit that go live.
Okay last question just on the sub term.
A lot bigger than I expected.
I've always assumed that to be flat or maybe slightly declining business with expansion.
And Tyler this is going on here you had the new name in Q4 that youre talking to or last quarter, you were talking about.
So is this some terms all driven by expansion or is there new wins is it is there some other dynamic that's causing the growth this quarter and then I'll pass the line.
A great question and I did ask that.
It is technically an expansion into a number of companies coming together.
All under one umbrella and so we've.
That has expanded.
I'm just gonna jump into it.
Got it.
The question, which is.
We gave guidance of 23% to 25% SaaS growth.
If we werent expecting that.
We would have the increase that we got in subscription term license revenue when we thought it might have been.
More on the SaaS side.
It provided us with the opportunity to give you immediate.
Higher guidance that we have at this point, but we're very pleased that we're still getting the subscription term license revenue it does come from expansion.
It's an interesting scenario, where we had a lot of great things that happened in Q4 and that expansion with one of the ones that was a nice surprise.
Yeah.
Yeah.
Our next question comes from Paul Treiber from RBC capital markets. Please go ahead.
Oh, thanks, very much and good morning, just a follow up.
Question about your comment on expansions I mean, you mentioned it on for term license, but just in regards to the renewals in the quarter. How has gross expansion been tracking in in 2021 have you seen an expansion.
Versus historical rates and and also did you see an improvement in logo retention and ultimately net dollar.
Spansion this year.
Yeah, Great question so.
We currently provide.
Disclosure, our guidance and were over 100% and era.
But I will give you a little bit of color on that.
<unk> are definitely going up into the right.
Higher than we've seen large a large part of that is driven because.
The revenue expansion that we've seen over 2020 . One is some of the strongest we've ever seen.
Our renewal expansion was extremely strong in 2021.
When we think about the logo retention numbers.
Uh huh.
We've talked about this before.
For enterprise type customers, you should expect somewhere in the range of 95% to 100% we're right in the middle of that despite the fact that we also had mid market and we are even smaller customers in mid market. So we are.
Very strong on the logo retention all sir.
Yes.
Thanks, that's helpful.
A high level question in terms of the overall demand environment, meaning obviously your comments are very positive about the demand environment, but just you know there's a number of other digital transformation initiatives in large enterprises.
We're going through right now.
And also you know supply chains have been disrupted based on the feedback from partners and customers. How do you see supply chain transformation ranking among all the digital transformation.
<unk> initiatives out there.
Yeah, It's a great great question and.
I've had probably 80% between 80 and 90 now one on one conversations with chief supply chain officers all over the world.
Call them interviews, if you will as part of our <unk>.
Our process here and it is absolutely at the forefront I mean boards are asking their Ceos. What are you going to do next time and if it isn't a pandemic, it's the inflationary impacts globally.
You know two to profit margin.
Or it's a war or stuck vote.
A deep freeze in Texas.
Appreciation that the only constant in all of the supply chain is disruption and if anything boards have realized that supply chains haven't proven to be as resilient as they should be to absorb these types of things.
I'll say this and this is a narrative that is really really well received it. This is not a technical problem and many people think well it has to do with digital transformation I would posture that that secondary.
Primary.
Dialog that we're hearing the primary narrative that we're hearing from from Pac practitioners is that.
What's what's wrong with current supply changes the technique not the technology, it's not a technological discussion at first it's one of the technique.
I do think.
This is absolutely at the forefront we're being asked now from some customers to do inflationary scenario management.
And again.
<unk> occurs in different geographies at different rates, and we will see recovery of inflation at different rates in different geographies and these companies are running daily scenarios to try to understand what the implications are of that disruption. So I think again as I said earlier.
I have just maybe in previous quarters, you would have heard me say I'm not quite ready to call. This systemic momentum.
Maybe I am now.
And again Q4 was that the success that we experienced and as I just said.
Earlier, the success that we've experienced in the first eight weeks of 2022 the momentum as the pace is maintaining itself here.
So I.
I would say this is at the forefront of enterprise discussions and what boardrooms or talking about.
And maybe I'll just add.
There was an interesting article or an update from the forecast from Gartner in January of this year on our.
Application software and.
And they made a statement, saying that they.
I expected that their modeling growth rates to increase the most now within supply chain management sector. In 2022, that's just another testament to the fact that we're in this Renaissance that we're going through we're going through that pushed that as we are in the process of land grab get as many customers because it's at the forefront of.
Everyone thinking right now they need to figure out their supply chains.
Just a final question for me and maybe you know its been up the punchline here is.
In terms of win rates I mean, you talked a lot about pipeline.
How is the pipeline converting through the funnel compared to your historical like our customers' closing.
At a faster pace or pace, but.
Probability.
And what they historically have.
Paul.
You can't see my smiling here, but you must be like.
Give me like slow pitch right now and you're talking about so these are great questions. Our pipeline is.
Obviously growing but the other big factor that you have to look at is what our conversion rates. So it was great that you asked that question in our conversion rates are going up are.
Conversion rates when rates were.
We were in a board meeting yesterday, we were looking at win rates and how they've changed over the last Oh.
The last four years, and it's like up into the right our conversion rates.
Q4 win with one of the strongest.
You know we went into Q foregoing our pipeline is really good but to get the number that we won forgot about pretty high conversion rate and then it converted even higher than we were expecting which is a great sign and so.
All of that to say that.
You're making me very happy with your questions Weird conversion rates are doing great. Our win rates are doing great. Our pipeline is growing and those are all the things that you would want as a CFO right now.
Okay, Great I'll pass the line.
The next question comes from Stephanie price from CIBC. Please go ahead.
Hi, Good morning, just curious on inflation and how much inflation is factored into the the margin guide here, just thinking about talent acquisition and retention specifically.
Sure.
We're like every other company around the world, we're getting hit by some of the inflation issue they're happening we've included <unk>.
Increases in.
Salaries and benefits within our our.
Our guidance so that's already baked in.
We do see that.
There is going to be a situation at some point where.
I think because we're in an area that a lot of.
People are seeing more often supply chain that I think we will benefit on the.
<unk> got some of the other companies may have it and then may be attracted to our area we are seeing.
Some of the attrition issues in our area as well I think they are lower than what we're seeing throughout the rest of the.
The industries.
I think we're also in a great position that the more people truckload supply chain and the issue of the supply chain have been more time, the more chance that will get people attracted to our business.
Thanks, and then just sticking on the margin guide, maybe you could talk a little bit more about the investments that you're making I understand that it's kind of broad based right now where we're specifically should we should we kind of think about it.
I think like the.
There are certain things that we.
We need to do.
Purely because of what we're seeing in current the current environment and demand but.
But I would say sales and marketing is the the one that you should really focus on where we have.
An exceptional sales team and they're very very efficient, we do look at our sales efficiency, we compare ourselves to.
Our peers. We believe we are best in class and that sales of fish that self sufficiency metric and.
And we're looking at where it's going to be with respect to two.
2022 and.
We think that will be in a very very strong position, so sales and marketing.
I would say that piece.
People should focus on and if they understand the efficiency metric, which you could actually calculate we look at the next 12 months AOR growth divided by the last 12 months sales and marketing and then.
You can see the you'll see the trend going up into the right over the next year I believe based on our.
Our projections that we have that we have baked in so.
Hey, Jay.
Nice place to be.
Great. Thank you very much.
The next question comes from Richard <unk> from National Bank Financial. Please go ahead.
Good morning. This is I'm here, calling in for Richard just wanted to ask about the Capex on the note.
There was a ramp in PP&E from the looks of it seems like it's not only for the new offices and I was wondering.
So I think that's correct and then also of your guidance for 2022, how much is there any part of the Opex expenses basically baked into that.
Yeah.
<unk>.
Most of that.
You asked about the Q4 ramp in Capex surety of that does relate to.
Our headquarters that have been.
Basically complete at this stage, we got there.
Say that we're 100% on all levels.
And it came in funnily enough.
Below our budget, which never happens right.
And.
Then for our guidance just to make sure I understood. Your question correctly were you asking about what our guidance was did it baked in the.
The Capex and us is that what you're asking.
No I'll just talk to you on the Capex like you guys saw.
<unk> $23 million to $28 million so what.
Incremental basically office related capex, there or is that all.
That's exactly the kind of et cetera.
Yes, sorry.
It is almost all related to data centers. There are some small amounts relate to our offices.
We are in the process of moving our building in India. So we have a smaller amount that we will have the majority of that has to do with the data centers.
Okay, and then I'm.
I'm, sorry, I I heard a bit of that.
Is that part of the subscription term license I personally two thirds would be recognized in the first quarter.
What would be a break out for the rest of the quarters again.
No 100% of that amount will be in Q1.
Okay, I never 100%.
Avi.
I Shouldnt say that.
Two thirds of it will come in Q1 of the total amount that we guided to it.
There'll be very little mountain you here and then.
Other amounts in Q3 and Q4.
Okay, and then just one question about.
Whether theres been any change in the competitive environment, including pricing.
Yeah, so on on the competition side.
We really haven't seen any meaningful shift.
We continue to see the typical incumbent especially in larger enterprise.
I'd say right.
It relates to pricing.
I wouldn't say competitive pressures isn't necessarily where we're focused.
But rapid start and the ability to lower the friction.
Getting started is where we have focused our attention there and that has worked in our favor so.
This certainly helps.
With mid market companies that are looking for an extremely aggressive timeline to value add.
And so not only is the pricing and the timing.
Of rapid start.
You know are beneficial there it certainly.
Increases our win rate I'd say that.
Okay. Thanks Congrats.
Congrats on the quarter on all possible one thank you.
Sure.
And our next question comes from Christian <unk> from <unk> capital. Please go ahead.
Hi, Good morning, I wanted to ask about the current pipeline.
Maybe we could ignore geography I'm more curious on what youre seeing from the different verticals now, which do you think could be the strongest key verticals. This year.
Yeah.
Testing is we were just at a board meeting and I, you know and and describing to the board the with the Pie chart looks like by vertical and I.
I have to tell you all six verticals are on the board.
In very meaningful ways, we don't necessarily see any weighting.
That said just looking at general pipeline, we continue to see high Tech electronics and life Sciences.
As as predominant drivers of subscription revenue.
As you just heard during the opening remarks.
Thank I mentioned five or six consumer packaged goods companies in that list and I and I think on prior calls I have said, we are starting to see that area a warm up.
For us and so that has actually manifested.
As I said it in previous calls it's manifested in some significant net new names there and so that that's you know I would say high Tech electronics CPG.
Life Sciences, you know tend to be the warmest.
But as as I noted with Mazda and the automotive sector.
There has been some wins in the aerospace and defense sector, which were not able to share but I.
I'd say all the verticals are warming up in the pipeline itself.
I don't see any concentration issues geographically I don't see concentration issues from a vertical perspective, and I you know.
I feel a little bit like a broken record because I feel like I say that every quarter, but it's you know.
I'm, saying it because that's what the charts are telling me.
So we're really really happy with the not only the strength and size, but the distribution of the pipeline.
That's very helpful. I've got a second question here on the partner Channel I wanted to ask about the timing one program with bar partners.
Maybe a two parter first I was curious what will can answer some level of engagement with these var partners I don't when we think of things like sales and support and then my second question is just some of the traction Youre seeing what are you hearing from your partners to date.
And so I I think I mentioned this earlier that.
Our thesis around the alliance partnerships remains very very strong.
It's working.
Our partners are as busy as we are we're doing our best to leverage you know bench strength, where we can find it and all of US the partners and US obviously hiring two to serve the demand of our program is quite new.
We announced that in 2022, I'm happy to say that in a very short period of time.
We've signed I want to say, it's close to 20, if not 'twenty.
Our around the World, we're working right now on on getting them ready for success, if you will and onboarding them and in the enablement side and you're absolutely right to call on rapid start as the foundation.
Planning one.
Planning one as a product leveraging rapid started the deployment methodology is obviously, where we think we can get the most leverage so stay tuned on that as I said, it's a relatively new program for us.
But I would say the number of hours that we've signed to date has outpaced our expectations and so we're investing right now where this is again part of the investment thesis in preparing for success is to make sure that.
We don't just signed bars in name only they have to be successful and we they have to be properly on boarded.
And for that we have to make investments.
Yeah.
Perfect. That's all helpful color. Thanks for taking my questions.
Yes.
In the interest of time, we ask that you.
You ask one question.
From now on and our next questioner will be Paul steep from Scotia Bank. Please go ahead.
Great I'll make my quick one two parts just a clarification and a first one.
Blake can you just confirm that in terms of how you think about deploying capital and investments I guess haven't changed how you're thinking about that in terms of data center right in terms of the build the build profile youre still looking one to two year out when you're doing it if we sort of.
Read into the growth of that and then the second follow up quickly would just be on the term license how should we think about the drop down of that over a three year period should mirror, what we saw in the last go round. Thanks guys.
Great.
<unk> answered the first question.
Yes is the answer.
We're not changing anything on or.
Capital deployment.
The the second question with.
With respect to how we should see subscription term license over the next three years.
Again, we've seen subscription term license historically before Q4, and what you see in 2022.
Barely flat like no no renewals are limited expansion.
But obviously we saw it in some.
New named accounts in Q4, and then some expansion you're going to see in two.
2022.
What I would expect is you'll see a.
A similar drop off in 2023 compared to what you saw again, the three years prior to that and the same thing in 2024.
But.
All of that is dependent on what happens with expansion in in our subscription term license revenue area and I don't expect it to go up to change, but at this stage I wasn't expecting to.
The increases we've seen over the past two quarters.
Interesting thanks.
The next question comes from Nick Agostino from.
Laurentian Bank Securities. Please go ahead.
Yes. Good morning, I guess my my one question is with regards to the big events.
Event. If you are big ideas event, you guys hosted last year in October obviously, well attended and my question is how much of that event itself.
<unk> is contributing to the pipeline growth you guys were talking about on this call that maybe how much of that event has led to two deals that are being baked into the guidance for 2022 or or is the answer nothing but you walk away with prospects that maybe you think are contributing to.
2023 2024, Thank you got it.
It's a great question Nick.
We were actually.
Quite thrilled and surprised at how much these virtual events are driven.
From an interest and ultimately.
In some cases, you know real pipeline development.
We track exactly who is these are you know.
Let's say by invitation, but thereby registration and so we know with absolute precision who is attending and that gets mapped to our Tam we know exactly which accounts are joining in on these virtual events like big ideas.
And so that gives us an opportunity to to warm up prospects that we know are in our sweet spot.
So.
I can't tell you I know with absolute precision what the.
Percentage of pipeline of individuals' that attended big ideas, but it is definitely not zero.
That is for sure we will.
Other events that we're doing in and and Youll see more during 2022, we are hosting an in person connections event and certainly hope to see our analyst community attending that.
In early May.
And so we're going to continue with the virtual programs as well because as.
As you saw we had thousands of people tuned.
Tuning in to.
To hear our story.
To understand what makes us.
And so I think.
Part of our big ideas is absolutely fueling the pipeline and part of it.
<unk> is coming from the likes of a gardener and.
And in recognition that the concurrency.
It is truly a breakthrough technique.
Okay. Thank you.
Our next question comes from Suzanne Sukkah Maher from Stifel. Please go ahead.
Okay.
Good morning Gents.
Congrats on an impressive quarter.
I had a question on here on market opportunity. It really sounds like you guys are seeing some really strong broad based demand globally between the market today do you see an opportunity for more geographic expansion to.
To increase your presence in the market that may not be served today or.
You already see yourselves well position with your current footprint than your partner reach.
I Love this question because I mean.
The answer is an unequivocal yes.
Just like you know, whether its geography or other verticals and you know as.
As the call started with Dan I was pointing out oil and gas.
Where you might not have thought of can access being a viable fit.
And I always say the same thing or are we going to break into this vertical or that vertical or cut and sew forestry, yes.
Yes, it's a matter of time you know.
And so the same is true for geographies now that said you know part of our thesis and I think part of what makes can access.
Able to grow while simultaneously providing responsible.
No.
Profits.
Cash flow is that we're hyper focused we're razor focused on the verticals and the Tam that we see before us and I am just not a believer in bifurcate our energy across you know.
Too many geographies and too many vertical simultaneously and failing at all of them.
So the answer is yes, we think about that a lot about geographies and verticals.
We think more so on verticals and the geographies, where we're already strong frankly, if I'm gonna be.
Frank about that but you will see continued expansion.
As we progress as a company part of that is the investment the investments, we're making in R&D, you'll see us enter the retail sector. For example in earnest during 2022.
Based on the investments that we're making we already have retail customers and we have retail prospects.
And.
You know at some point in the future I hope you'll be able to describe exactly what they are.
But again these take investment.
And and Youll see us continue to do that for many years to come.
Okay perfect. Thanks for taking my question.
Thank you.
The next question comes from Matt Martin Excuse me March and Toner from <unk> capital markets. Please go ahead.
You've talked about.
Cute reasons for.
Professional service growth being higher than subscription and higher overall person who's been in the recent past.
Is there anything structural about that.
I I don't see anything other than just pure.
Accelerated demand.
When you have a certain collective bench strengths between your partner Alliance group.
And and can access and obviously our own bench and the combined market demand that's driving the need for service and an accelerated pace.
That's what it this is coming from we have customers asking us for Sustainment services at a record pace.
Again, a lot of this is a reaction.
Manufacturers are reacting to the volatility they are experiencing in the market and that is driving a need to accelerate.
The value of concurrency.
And so when you look at the demand the capacity required to fulfill that demand well.
The truth of the matter is we're seeing a demand is outpacing the collective capacity at a rate that we are well, it's a great problem to have but its problem and it's not just ours. It's our alliance partners are tapping in their hiring as fast as they can and and again. This is a reason for our investment thesis for 2022 were not.
Going to be timid, we are not going to be timid in the face of this momentum.
And Ah nor will our partners, we're going to seize the day and so it's it's a it's a great problem to have but its problem and so we're working on it every single day.
Great answer thank you very much.
This concludes our question and answer session.
To turn the conference back over to Rick Wadsworth for any closing remarks.
Thanks, operator, and thank you all for participating on our call today. We appreciate your questions and your ongoing interest and support of connects as we look forward to speaking with you again, when we report our first quarter results Goodbye for now.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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